2017 year-end tax planning in light of possible tax reform
Tax planning makes sense every year, but this year it is especially important in light of the impending potential tax reform. This article discusses some steps you should consider. Keep in mind however that these ideas depend upon each person's individual tax situation, so they may or may not be right for you.
Defer income to 2018
If tax reform does go through, you might be in a slightly lower marginal tax bracket next year. Again this depends upon your individual situation.
- If your marginal tax bracket will be going down, then you should consider deferring to next year any income whose timing you have control over, for example, a voluntary distribution from an IRA in excess of the required minimum distribution for the year.
Accelerate deductions into 2017
- By the same token, if your tax bracket is going down next year, itemized deductions will have more value to you if you pay them before year-end 2017.
Even more significantly, the tax reform bills in Congress propose to increase significantly the standard deduction and to eliminate or curtail certain existing deductions. For example, the proposed new law would cap the deduction for state income taxes and local property taxes at a combined amount of $10,000 per year.
- You might consider paying your January property tax bill before December 31st if your town permits it.
- If you make estimated state income tax payments, consider making your 4th quarter estimated payment before year-end.
Keep in mind however that these payments will not benefit you if you are subject to the Alternative Minimum Tax (AMT) , since the AMT calculation disallows state and local tax deductions altogether. Again, what makes sense depends upon each person's individual tax situation.
Under current law, interest on up to $100,000 of a Home Equity Line Of Credit (HELOC) is deductible even if it is not used for home improvements. The proposed tax reform bills would eliminate this deduction.
- You might consider making interest payments on this kind of debt before year-end.
Interest on HELOCs not used to make home improvements is already not deductible for purposes of the alternative minimum tax. If you are subject to AMT in 2017, such payments would not give you any benefit.
The tax reform bills propose to almost double the standard deduction, to $12,000 for single taxpayers and $24,000 for married filing jointly. If tax reform does go through, many people who are accustomed to itemizing deductions will no longer be able to, because the standard deduction will be larger than their itemized deductions.
If that is your situation, even itemized deductions that are not curtailed or eliminated will be of no use to you next year. For example, charitable contributions in 2018, even though deductible, will not benefit you if you can no longer itemize.
- You might consider paying some of your next year's charitable donations before the end of this year.
Again this depends upon each person's individual situation. (Charitable contributions are not affected by the alternative minimum tax.)
Keep an eye on developments with the tax reform proposal, and consult with your tax advisor about what steps make sense for you.
Arthur F. Dicker, JD, LL.M., CFP®
Donna Casey, CPA
Welcome Donna Casey, Curran's new Wealth Strategist
We are pleased to announce that Donna Casey, CPA, has joined Curran Wealth Management as the new Wealth Strategist, as Art Dicker will be retiring at the end of 2017. Donna will be providing advice and guidance for clients in matters relating to wealth management such as taxes, financial planning, and insurance. Donna has several years of experience in taxes and accounting.
“I am very happy to be part of the Curran Wealth Management (CWM) team. It is a great opportunity to help clients achieve their financial goals. I look forward to contributing to CWM’s future and success.” – Donna Casey
Please join us in wishing Art well in his retirement, and welcoming Donna to the Curran team.